It can be very, very financially intelligent to add a little extra every month to your minimum mortgage payment to pay off your FHA loan (or any other mortgage loan) early. Some benefits of adding extra payments:
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You can look at it as investing that extra cash. If you have a 5.5% interest rate on your loan, every extra dollar you pay above your minimum monthly payment is earning you 5.5%.
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The earlier you pay off your mortgage, the less interest you pay over the life of the FHA loan
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Once you pay off your mortgage, you will only have property taxes (and an HOA fee if you are in a condo) as your total housing expense. This can provide great security to a homeowner who is retiring on a limited income. You will also have the added security of having all the equity in your house as part of your personal wealth. You can have great comfort knowing you can retire in a home that is owned by you free and clear with a very small housing payment.
The following are some examples of how quickly you would pay off your FHA mortgage if you add extra to the payment every month and what you would save in interest over the life of the FHA loan.
Example 1: $200,000 loan balance with a 30 year fixed 5.5% interest rates and minimum payment of $1,135/mo
| Extra Payment | Loan balance after 5 yrs | Loan balance after 10 yrs | Loan balance after 15 yrs |
| $0 | $184,921 | $165,081 | $138,978 |
| $100 | $178,032 | $149,130 | $111,104 |
| $200 | $171,144 | $133,180 | $83,229 |
| $300 | $164,256 | $117,229 | $55,355 |
| $500 | $150,480 | $85,327 | $0 |
So if you added $500 extra payment to your mortgage you would pay it off totally in 15 years! Paying your loan off in 15 years would save you $114,000 in interest vs. if you did not pay any extra and just made the minimum payment and paid the loan off in 30 years.
Example 2: $350,000 loan balance with a 30 year fixed 5.5% interest rates and minimum payment of $1,987/mo
| Extra Payment | Loan balance after 5 yrs | Loan balance after 10 yrs | Loan balance after 15 yrs |
| $0 | $323,611 | $288,892 | $243,211 |
| $100 | $316,723 | $272,941 | $215,337 |
| $200 | $309,835 | $256,990 | $187,462 |
| $300 | $302,947 | $241,039 | $159,587 |
| $500 | $289,171 | $209,138 | $103,838 |
If you added $500/mo to the payment you would save $152,000 interest and pay the loan off totally in 19 years vs. 30 years.
I hope these examples open your mind to how much interest you can save, and how much faster you can have your mortgage totally paid off, by making extra payments every month on top of your minimum monthly mortgage payment. Please call me or email me if you have any additional questions about purchasing a home or refinancing with an FHA mortgage or any other type of home mortgage.
Warmest Regards,
Rob Chomentowski
Sr. Loan Officer and FHA Loan Specialist
858-922-7899 (direct)
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